Organizational Due Diligence for Cross-Border M&A – Turkey

February 29, 2012

BACKGROUND

Location:is located in the

southeastern Europe and the

Southwestern Asia

Capital: Ankara

Population:74.7 Million people estimated for 2011

Language: 90% Turkish.

Other dialects: Kurdish, Arabic,

Circassian, Greek, Armenian, and

Judezmo.

Religion:99% Islamic

Different Islamic groups managed to co-exist together in tolerance.

Although Turkey professes to be a strictly secular country, Islam shaped the culture and the society since it is practiced by the majority of the population.

Turkey has the particularity of sharing both the European and the Asian.

Urban Population: 70%

Rural Population: 30%

Internet Access: 43%

HUMAN RESOURCES

(TLL) TURKISH LABOUR LAW: Regulates all Employment Relationships.

MINIMUM WAGE (MONTHLY): 837 TRY or 474 USD

WORKING HOURS: 45 Hours a Week, and 11 Hours a Day

UNION LAW: All Employees Working Under an Employment Agreement are Eligible to Become a Member of a Labour

Union

MOTIVATION AND TRAINING: Highly Valuated in the Turkish Culture

CORPORATE GOVERNANCE: Rule-Based System of Governance, as Opposed to a Relationship-Based

Personal relationship is key to success in the business

Business conversations should be begun from short conversation• ie: family and soccer, avoiding subjects as religious and politics

People respect punctuality and accuracy

Decision making process is slow and hierarchical

Male earn 3.5 times more than female• ie: 105th out of 134 countries in equal payment to women

Business Etiquette

PEST Po

litics • European Union (EU)

accession •Accession filled in 2005

•Resistance from the EU to accept due to Human right violations

• Prime Minister vs President•President – Ceremonial

•Prime Minister – Executive power

Econ

omic

s•17th largest economy

•GDP :$1.05•Growth: 6.6% In 2011

•GDP:•25.5% agricultural,•26.2% industrial, •48.4% services

•Major trade partners:•United States, •China, •Russia, •Switzerland•Norway

•Currency:•Turkish Lira (0.56 USD)

Soci

al • Success in reducing poverty•28% in2003 to 18% in 2006

• Aim to achieve sustained rapid growth and improving living standard

• Difference between female and male in education

• Secondary school: female:77% vs. male:87%

• Difference between urban city and local city about quality of health care

Tech

nolo

gy •Internet:• 43% of the

households• 18.6% of them

bought goods or services through internet in 2011

• 92.4% of enterprises use Internet

• 59.9% of them have website In 2011

•Cellphone:• Fast growth in

cellphone users• 4M in 2000 to 62M

in 2010

M & AFinancial

• Fast growth driven by internal consumption

• Economist forecast that it will grow as fast as China and India

• Types of Deal• Asset vs. Share Acquisition

• Tax Incentives• Single digit inflation rate

Regulations

• Unrestricted foreign ownership

• Legal framework - EU

• Customs agreement with the EU

• Little restriction on cash repatriation

Risk

• Split between the east and west

• Accounting standards vary form company

to company – moving to IFRS

• Volatility in energy prices, due to the

dependence on Russia and the middle east

• More than half of the population are under 28

• Entrance to the Muslim world• Geographic position• Increasing qualified workforce• Key industries for target

• Construction, automotive, energy, healthcare and banking

Strategic

• Formal Greeting: hand

shake• Normal Greeting: cheek kiss

• Showing of emotions is

accepted• Conflict is threatening – need to agree

• Settle agreements on paper• Work in order to live

• Hierarchical Organizations• Preferred leadership styles:

pacesetting and authoritative• Need for Laws and

Rules

• Traffic jams• Lack of respect – no cues• Penalty Implies loss of face

and shame• Muslim society – body is sacred• Potable water is an issue

• Highly individualistic• Short term orientated• Relationships have priorities over

tasks• Easily forget the past

INTERVIEW

National Culture

Corporate Culture

Business Norms & Practices

Life in Turkey

Mercer’s Cultural Dimensions

Achievement

Environment

Perspective

Power

Communication

Risk

Cultural Dimensions Recommendations

Do not integrate, Partner with them

Team objectives should be aligned with personal objectives in order to achieve companies results

Communication should be done

top-down

Managers are not expected to take risks. Decisions are

made by the Sr. Management

Even though, the country is promoted as a secular one, in the East Islam should be

taken into account

Rapid improvements and technology adoptions are

encouraged

Q&A